We Make Company has traditionally manufactured a number of different standard machine parts. It is now exploring

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We Make Company has traditionally manufactured a number of different standard machine parts. It is now exploring an outsourcing decision for several of the parts that it currently produces. Cost information for one such machine part is given below:

Variable cost/unit .............................................................. $ 28.00
Fixed manufacturing costs (total) ................................. 4,250.00
Allocated corporate overhead ...................................... 6,560.00
Unit product cost (based on 500 units) ......................... $ 49.62


Fifty percent of the fixed manufacturing costs are directly traceable to this specific machine part and therefore avoidable. An outside supplier will sell the part at a price of $45 per unit if 500 units are purchased.


Required:

Assess whether We Make should continue to manufacture this machine part or whether it should purchase it from the outside supplier.

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Related Book For  book-img-for-question

Introduction to Managerial Accounting

ISBN: 978-1259105708

5th Canadian edition

Authors: Peter C. Brewer, Ray H. Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan

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